Graduate Mortgages  Characteristics

Graduate Mortgages

Most graduates in the UK leave higher education with sizeable debts, so few are in the fortunate position of being...

Characteristics

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Several leading UK financial institutions, including HSBC and Scottish Widows, offer mortgages targeted at recent graduates of UK universities. Although slight variations exist between what different mortgage lenders offer, most graduate mortgages tend to follow a similar pattern.

Common Eligibility Requirements
Common characteristics of graduate mortgages include:
Bullet Point 100 percent loan to value (LTV) ratio, or even 102 percent (with the extra 2 percent to cover some purchasing and furnishing costs);
Bullet Point available to borrowers, up to the age of 35, within 7 years of graduating from a UK higher education institution;
Bullet Point higher income multiples (on the basis of future salary prospects) used to calculate the size of the available mortgage;
Bullet Point low interest rate deals for the early years of the mortgage;
Bullet Point if the graduate wants to borrow more than is justified by their current salary, parents or other close relatives are permitted as guarantors for the difference between what the lender thinks the borrower can afford and the actual sum advanced; they are not required to be guarantors for the whole mortgage.

Common Terms of a Graduate Mortgage
Most lenders that promote graduate mortgages offer interest only, discounted rate and tracker options. Interest only mortgages are particularly attractive to recent graduates because monthly repayments are considerably lower than for other types of mortgages.

As most graduates expect to be able to afford a higher value property within a few years, failing to pay off any capital on a property in the first few years is not normally seen as a problem, particularly if taking this type of mortgage means the difference between getting on or not getting on to the property ladder. As long as property prices do not fall, the graduate borrower has little to lose.

Discounted rates are very useful for recent graduates as this will often mean that a lower rate is offered for a set period, for example, 2 to 5 years. During this time, there are normally penalties if the mortgage is redeemed during the discount period. In most cases this penalty will not be charged if another mortgage is taken with the same provider, although it is unlikely that another discount period will be offered.

Other common terms in a graduate mortgage include reduced fees or no fees, as well as cash back towards the additional costs such as fees and furnishings. Again, with these additional benefits, some may not be offered for subsequent mortgages or may be repayable if the mortgage is redeemed within a set period of time.

When looking at the benefits offered with a graduate mortgage, always compare this mortgage with a standard first time buyer or discounted mortgage to see the true difference. Sometimes, it might be better to pay a fee rather than accept a higher rate but with no fees.

Summary
Bullet Point As with other types of mortgages, eligibility and terms vary between mortgage providers and it is important to shop around with your individual requirements in mind;
Bullet Point in many cases there will be incentives to take out certain mortgages such as no fees, but these may work out more expensive in the medium to long-term;
Bullet Point consider other mortgages such as first time buyer mortgages, as well as graduate mortgages, because you might just find a better deal for your circumstances.

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